Are CD Rates About to Move Higher Any Time Soon?
Interest rates on mortgage loans moved higher the past three months along with long term bond yields. Are higher CD rates on the way? Don't count on it any time soon. You would think that bank CD rates and other deposit rates would move up since mortgage rates have gone up around 1.00 percent and long term bond yields are also up around 1.00 percent.
Deposit rates are not moving higher because banks are flush with cash and have no need to offer higher rates to attract deposits. Another reason banks don't need cash is the loan volume isn't there to soak up deposits. Stricter mortgage lending requirements have dampened the demand for loans.
Banks have also raised their lending requirements for business loans as well, which has also decreased demand. The one area of loan demand that has increased is consumer credit. The Federal Reserve tracks consumer credit monthly and for the month of May both revolving and non-revolving consumer credit have increased. Revolving credit increased at an annual rate of 9-1/4 percent, while non-revolving credit increased at an annual rate of 8 percent.
The increase in consumer credit alone won't send deposit rates higher. Loan demand overall has to increase for banks to have a need to increase deposits. Another factor holding CD rates down is the Federal Reserve. The Fed's current policy is to keep interest rates low to help the economy expand. The Fed's key benchmark interest rate, the federal funds rate, has been at zero percent to one quarter percent for almost 5 years now.
CD interest rates, savings rates, and money market rates will all start moving higher in the coming years but don't expect any major increases unless the economy and inflation really start to take off. Savers should consider staying in shorter term certificates of deposit of a year or less. Another option is to stick with savings accounts or money market accounts but you can get higher rates with CD accounts.
You have to search for the best CD rates because the difference between the lowest CD rate and highest CD rate available is substantial. For example, the best 1 year CD rate on our list right now is from GE Capital Retail Bank at 1.04 percent with an APY of 1.05 percent. The lowest 1 year CD rate on our list is from iGOBanking at 0.15 percent.
As you can see, a rate difference of 0.89 percent between the best and worst rate available can add up. On a $100,000 CD, the annual interest earned is $890. On $1,000,000 the difference in interest earned is $8,900. You can search for the highest CD rates here at RatesORama.
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